This guidance sets
out examples of the type of actions that a firm proposing to outsource should have undertaken when assessing
the suitability of the service provider and its ability to carry on the outsourced
activity.

If a firm can
demonstrate that it has taken the following guidance into account and has
satisfactorily concluded that it would be able to continue to satisfy the
common platform outsourcing rules
and provide adequate protection for consumers despite not satisfying the conditions,
the FCA would not be likely to object
to that outsourcing.

SYSC 8.3.4G01/11/2007

If the outsourcing allows
the service provider to sub-contract any of the services to be provided under
the outsourcing, any such sub-contracting
shall not affect the service provider's responsibilities under the outsourcing agreement.

SYSC 8.3.5G01/11/2007

The outsourcing agreement
should entitle the firm to terminate
the outsourcing if the service
provider undergoes a change of control or becomes insolvent, goes into liquidation
or receivership (or equivalent in its home state) or is in persistent material
default under the agreement.

SYSC 8.3.6G01/04/2013

The following should be taken into
account where the service provider is not authorised or registered in its
home country and/or not subject to prudential supervision.

(1)

The firm should
examine, and be able to demonstrate, to what extent the service provider may
be subject to any form of voluntary regulation, including self-regulation
in its home state.

(2)

The firm should
be able to satisfy the FCA that the service provider is committed
for the term of the outsourcing agreement
to devoting sufficient, competent resources to providing the service.

(3)

In addition to the requirement
to ensure that a service provider discloses any developments that may have
a material impact on its ability to 2carry out the outsourcing (SYSC 8.1.8 R (6)), where the conditions are not met the developments to be disclosed
should include, but are not limited to:

(a)

any adverse effect that any laws
or regulations introduced in the service provider's home country may have
on its carrying on the outsourced activity;
and

(b)

any changes to its capital reserve
levels or its prudential risks.

(4)

The firm should
satisfy itself that the service provider is able to meet its liabilities as
they fall due and that it has positive net assets.

(5)

The firm should
require that the service provider prepares annual reports and accounts which:

have been independently audited
and reported on in accordance with the service provider's national law which
is the same as or equivalent to international auditing standards.

(6)

The firm should
receive copies of each set of the audited annual report and accounts of the
service provider. If the service provider expects or knows its auditor will
qualify his report on the audited report and accounts, or add an explanatory
paragraph, the service provider should be required to notify the firm without delay.

(7)

The firm should
satisfy itself, and be able to demonstrate, that it has in place appropriate
procedures to ensure that it is fully aware of the service provider's controls
for protecting confidential information.

(8)

In addition to the requirement
at SYSC 8.1.8 R (10) that the service provider must protect any confidential information
relating to the firm or its clients, the outsourcing agreement
should require the service provider to notify the firm immediately
if there is a breach of confidentiality.

(9)

The outsourcing agreement
should be governed by the law and subject to the jurisdiction of an EEA state.

SYSC 8.3.7G01/04/2013

The following should be taken into
account by a firm where there
is no cooperation agreement between the FCA and the supervisory authority
of the service provider or there is no supervisory authority of the service
provider.

(1)

The outsourcing agreement
should ensure the firm can provide
the FCA with any information relating to the outsourced activity the FCA may require in order to carry
out effective supervision. The firm should
therefore assess the extent to which the service provider's regulator and/or
local laws and regulations may restrict access to information about the outsourced activity. Any such restriction
should be described in the notification to be sent to the FCA.

(2)

The outsourcing agreement
should require the service provider to provide the firm's offices
in the United
Kingdom2 with all requested information
required to meet the firm's regulatory
obligations. The FCA should be given an enforceable right
under the agreement to obtain such information from the firm and
to require the service provider to provide the information directly.